British High Court Judge Delivers Seminal Ruling Voiding the UK Recognition of a Russian Bankruptcy in the Magnitsky Case; Russian Liquidator to Pay William Browder and His Colleagues £1.6 Million

December 5, 2017

Press Release

For Immediate Distribution

British High Court Judge Delivers Seminal Ruling Voiding the UK Recognition of a Russian Bankruptcy in the Magnitsky Case; Russian Liquidator to Pay William Browder and His Colleagues £1.6 Million

5 December 2017 – Today, the Chancellor of the High Court of England and Wales has voided the recognition of a Russian bankruptcy at the centre of the Magnitsky case, which targeted William Browder and his colleagues.

The Chancellor ruled that the Russian liquidator, Kirill Nogotkov, was in breach of his duty to the court, finding his conduct “inexcusable,” and “quite unthinkable” for an English insolvency practitioner.

The judgment was handed down by the Chancellor of the High Court, Sir Geoffrey Vos, who is the head of the Business and Property Courts of England and Wales.

Mr Nogotkov has agreed to pay £1.6 million in legal costs to William Browder and his colleagues on an indemnity basis.

“The action by Mr Nogotkov was one of many attempts by the Russian authorities to attack Mr Browder and his colleagues outside Russia and to seek legal assistance from other countries. Today’s decision from the UK High Court brings a welcomed end to this latest attempt,” said a representative of the Global Magnitsky Justice movement.

The proceedings in the UK began in July 2016 when Mr Nogotkov obtained a UK court order recognising the Russian bankruptcy of Dalnyaya Step, a former Russian company of the Hermitage Fund, which was at the centre of the posthumous trial of Sergei Magnitsky and the in absentia trial of Mr Browder four years ago in Russia. The Russian authorities have since revived Dalnyaya Step, eight years after it had been dissolved, to continue to target William Browder and his colleagues.

To obtain recognition in the UK, Mr Nogotkov relied on the international Cross-Border Insolvency Regulations (CBIR) which allow for the recognition of a foreign bankruptcy in the UK, except in cases which raise public policy considerations.

In his 2016 application to the UK court, however, Mr Nogotkov did not tell the UK court about any public policy considerations or the connection of the case to Mr Magnitsky and Mr Browder.

Lord Justice Vos found that the case involved serious public policy issues which should have been disclosed and made his ruling necessary.

“In my judgment, where there are serious allegations of wrongdoing, as there are here, and where the UK Government has already made clear its views about connected aspects of the case, this court cannot stand by without deciding whether or not there has indeed been inappropriate conduct.”

Shortly before the High Court hearing, Mr Nogotkov had agreed to pay the legal costs of Mr Browder and his colleagues on an indemnity basis, in the sum of £1.6 million. Courts in the UK rarely award indemnity costs as a punitive sanction in exceptional cases involving abnormal and unreasonable conduct by a party.

Lord Justice Vos said in the judgment that Mr Nogotkov had appeared to try to “buy off” judicial scrutiny of his conduct with the offer of a substantial cost payment to Mr Browder. The Chancellor said such conduct would be “unthinkable” for an English insolvency practitioner.

“Mr Nogotkov has indeed attempted to buy off the determination of the FFD [Full and Frank Disclosure] issue, by paying a large amount in costs in somewhat dubious circumstances,” the Chancellor says in the judgment.

“Mr Nogotkov’s agreement to pay indemnity costs out of the estate (as he originally intended) smacked of an attempt to protect his own reputation at the expense of the bankrupt estate. Such a course would be quite unthinkable for an English insolvency practitioner in an English insolvency,” the judgment says.

In a 28-page judgment handed down today, the Chancellor found that the Russian liquidator breached the duty of full and frank disclosure owed to the court, by failing to tell the court that the Russian bankruptcy of Dalnyaya Step was connected to the Russian state campaign against Mr Browder and Mr Magnitsky, including the posthumous trial of Mr Magnitsky.

“The history of the Russian state’s actions against the Hermitage Parties were material facts of which the English court needed to be fully and fairly informed,” says the judgment.

“My summary of the facts makes it abundantly clear that the English court ought to have been told that public policy issues might be engaged as a result of the political background I have described. In any event, Mr Nogotkov’s inquiries about the Russian criminal proceedings meant that he ought to have been aware of the UK Government’s responses to previous requests for assistance in relation to the same tax liabilities of [DalnyayaStep], the same Hermitage Parties and Mr Magnitsky. His failure to alert the court to the public policy issues and the political background was inexcusable,” says The Right Honourable Lord Justice Vos in the judgment.

“Today’s judgment is a demonstration of the strength of the rule of law in the face of the repeated abuse from the Russian state and its agents,” said William Browder, leader of the MagnitskyJustice movement.

Mr Nogotkov is a Russian insolvency practitioner appointed at the end of 2015 by the Russian authorities to Dalnyaya Step, which itself was resurrected eight years after it ceased to exist, on the orders of the Russian Interior Ministry as part of the Russian state-sponsored attack and in absentia criminal proceedings in Russia against Mr Browder and his colleagues.

Last year, Mr Nogotkov applied to register the Dalnyaya Step bankruptcy proceeding in the UK. Mr Nogotkov did not disclose to the court the connection of the bankruptcy case to Mr Browder and Mr Magnitsky and possible public policy issues.

Bill Browder is the leader of the Global Magnitsky Justice movement. Sergei Magnitsky testified about the complicity of Russian officials in a sophisticated US$230 million fraud. He was then arrested by some of the implicated officials and killed in Russian Interior Ministry custody at the age of 37. Since then Mr Browder has been advocating for new legislation around the world to sanction those involved in Mr Magnitsky’s death and the US$230 million fraud he had exposed. The USA was the first country to pass the legislation in December 2012. The UK, Canada, Estonia and Lithuania have all passed Magnitsky-style legislation.

Sir Geoffrey Vos was appointed Chancellor of the High Court of England and Wales on 24 October 2016. He holds responsibility for the conduct of business in the Business and Property Courts. Prior to this role, he was appointed a Lord Justice of Appeal in 2013 and acted as President of the European Network of Councils for the Judiciary from June 2014 to June 2016.